I need to spend more time analyzing this scenario, but I'm wondering what others think and I'm hoping to get some ideas on where to focus, especially later in the process when I'd have to take RMDs.
Assume a one million dollar portfolio that is ~75% tax-deferred (401k/IRA), 15% tax sheltered (Roth IRA), and 10% in taxable accounts.
Current age is 45 and retirement is somewhere between 50 and 55, but for this scenario lets assume that I retire at 50. That means the taxable accounts need to provide income for 10 years.
To keep things simple, I'm assuming a 3.5% WR and no portfolio growth. That means I'd need 35k/year from the portfolio, which for 10 years is 350k. The 100k that's currently in taxable accounts lasts a bit under 3 years. I need to figure out how to come up with income for the additional 7 years.
During the next 5 years, I'll be saving about 40k/year. That could add another 200k to taxable accounts.
This is where I start thinking about some of my options, which I've narrowed down to the following three:
1. Put the entire 40k/year into taxable accounts. After 5 years, there'd be 300k in the taxable account, which lasts about 8.5 years. That's probably close enough to 10 years where I wouldn't worry about the extra 1.5 year (I can work an extra year if necessary, take a small chunk out of the Roth, etc).
The problem with this option is that I'd give up 18k/year contribution into my 401k, along with a company match. I'd also pay more in taxes, which I'd prefer to avoid. So this option is unlikely.
2. Contribute the full 18k/year to the 401k and get the company match. Take the remaining 22k/year and invest it in a taxable account. This leaves 6 years of income available in taxable accounts, so I'd have to figure out where to get the remaining 4 years. Working longer is an option, but at this point I might consider a 72t or taking principle out of the Roth.
3. Contribute the full 18k/year to the 401k and get the company match and contribute the remaining 22k/year to a Roth IRA (via a mega-back door). This options means that I'd need to come up with a little more than 7 years of income. If I went this route, I'd most likely have to do a 72t.
My leaning is towards option #3, even though I'd prefer to avoid a 72t. This leaves the most in tax sheltered accounts and the larger amount in the Roth is a big plus. But I'm wondering if anybody sees any downfalls with this option?
I'm also wondering about RMDs. I haven't looked at that part in any detail, but I'd plan to rollover as much as possible into the Roth prior to RMDs. I suspect that I could be in for a shock when RMDs kick-in, but maybe that's a good problem to have?
Assume a one million dollar portfolio that is ~75% tax-deferred (401k/IRA), 15% tax sheltered (Roth IRA), and 10% in taxable accounts.
Current age is 45 and retirement is somewhere between 50 and 55, but for this scenario lets assume that I retire at 50. That means the taxable accounts need to provide income for 10 years.
To keep things simple, I'm assuming a 3.5% WR and no portfolio growth. That means I'd need 35k/year from the portfolio, which for 10 years is 350k. The 100k that's currently in taxable accounts lasts a bit under 3 years. I need to figure out how to come up with income for the additional 7 years.
During the next 5 years, I'll be saving about 40k/year. That could add another 200k to taxable accounts.
This is where I start thinking about some of my options, which I've narrowed down to the following three:
1. Put the entire 40k/year into taxable accounts. After 5 years, there'd be 300k in the taxable account, which lasts about 8.5 years. That's probably close enough to 10 years where I wouldn't worry about the extra 1.5 year (I can work an extra year if necessary, take a small chunk out of the Roth, etc).
The problem with this option is that I'd give up 18k/year contribution into my 401k, along with a company match. I'd also pay more in taxes, which I'd prefer to avoid. So this option is unlikely.
2. Contribute the full 18k/year to the 401k and get the company match. Take the remaining 22k/year and invest it in a taxable account. This leaves 6 years of income available in taxable accounts, so I'd have to figure out where to get the remaining 4 years. Working longer is an option, but at this point I might consider a 72t or taking principle out of the Roth.
3. Contribute the full 18k/year to the 401k and get the company match and contribute the remaining 22k/year to a Roth IRA (via a mega-back door). This options means that I'd need to come up with a little more than 7 years of income. If I went this route, I'd most likely have to do a 72t.
My leaning is towards option #3, even though I'd prefer to avoid a 72t. This leaves the most in tax sheltered accounts and the larger amount in the Roth is a big plus. But I'm wondering if anybody sees any downfalls with this option?
I'm also wondering about RMDs. I haven't looked at that part in any detail, but I'd plan to rollover as much as possible into the Roth prior to RMDs. I suspect that I could be in for a shock when RMDs kick-in, but maybe that's a good problem to have?